Whilst children’s fables are kept simple for the obvious, there’s usually a more complex, underlying lesson for the adults, as Hollywood knows only too well. Unfortunately it wasn’t pure gold purchasing the oats to feed Boxer and ultimately sparrows. That pure gold would have represented Boxer’s true share and if the pigs running the farm didn’t appreciate the best way to produce the most oats for all, or relied on printing funny money, or credit from other farms, then there was a certain moral tale for various pigs and farms in our story children. You can read the history of some of the pigs and pick up the newspaper for the current plight of others that ignored sound farming techniques and appropriate fiscal prudence. That’s essentially why we Austrian afficionados go round with supercilious, wry grins on our faces so often children.

The moral to the tale is always the same children. Various forms of Mechanistic Keynesian hubris, (from totalitarian to the mild well meaning) coupled with human frailty and the temptation of the printing press. Oh the setting may be different with manipulated exchange rates or some peculiar demographics, but the outcome eventually the same. First cab off the rank with the funny money gets the immediate benefit of its purchasing power, rapidly decreasing as it circulates and trickles down to the poor sparrows. Naturally that funny money process makes everyone want to be at the top of the money chain as we’ve seen. So the malinvestments begin in earnest and as they do they begin to rip the heart out of real savings, investment and production, which of course means consumption ultimately. Wall Street goes from 16% of GDP to 40%+, whilst the great names of Main Street turn into the GMACs and GE Genie moneys. What happens when the manure finally hits the rundown barn? Well you can imagine how the piggies all squeal like stuck pigs and scramble for the rapidly shrinking revenue stream of their trough. Notice now how the Mechanistic Keynesian piggies are bailing out the finance piggies but unfortunately for those sparrows way down the chain in the Big3? Well you know how it is with the necessity of Chapter11 and we all have to make sacrifices kids? So you don’t like our supercilious, wry grins children? Then tell these so-called adults to stop putting them there!

Actually, the best explanation of trickle-down that I have heard is this.

Trickle-down is basically the doctrine that if a rich man takes a trip to the urinal he is liable to accidentally drop a few coins along the way, which in turn are likely to be picked up by a homeless man. This is also known as the piddle-down effect.

Even though I’m not a critic of trickle-down, I can still produce a much wittier definition. Whoever said free-marketeers lack a sense-of-humour?

By definition, if nothing trickled down from the financial sector or the resources boom to begin with, then the bulk of the population has nothing to lose from the bust.

That would be true, if it wasn’t that the future earnings of the average taxpayer (in the US at least) weren’t being used to prop up the financial elite. You couldn’t call it trickle up, it’s more like a deluge.

But of course in Australia the reverse socialism has been administered through such schemes as the FHOG and negative gearing for quite some time. I know the politicians claim that such schemes support the middle class, but in reality they create wealth for real estate agents, property developers and financiers. The average home owner can never really make a profit from their home. If industries such as property development were truely competitive, then they wouldn’t need such schemes to prop them up.

But that point also highlights the irony of booms. Lauded by as periods of ultra-competitive activity, they tend to create the reverse effects of what we are told to expect from a competitive environments, i.e. lower prices. So in reality booms create great inefficiencies, which show up in higher prices. Just another reason why booms should be avoided at all costs, especially at the expense of the tax payer.

Yawn…..well if you did any actual science instead of pretend “economics” science then you would know just how valuable a substance horse manure and manure in general is, and its part in making the world habitable, but you are not so you cant.

I think an Indian friend summed it up best “why do you want to go and live in Mumbai?”, “because I have more chance of being rich there”

So would you rather be poor in a poor country or poor in a rich country? answers on a postcard.

Throughout reading that tale I tried to keep a talley of the turnover that it took to send $10 to the bottom of the pyramid. It is kind of as the saying says “to be certain of making a small fortune it is necessary to start with a big one”.
I personally think that Jane Austen framed trickle down far better in Sense and Sensibility with her protrayal of John Dashwood discussing his father’s wishes for Henry Dashwood’s second family with his Wife, Fanny Dashwood. Waste not, want not.

Just a warning, there are quite a few transcription typos in the ABC record of JRS’s speech.

Here is one of his gems with typos corrected.

“They reward mediocrity, that’s the purpose of business schools. It doesn’t matter how badly they’re doing, they just keep hiring more people who come from the same training as themselves and that’s called, used to be called nobility, it’s now called business schools and mediocrity. It’s certainly not meritocracy.”

Gotta love a man who rips into the business management schools! What cesspools of stupidity and mediocrity they are!

Really Observa – for the past thirty years we have been living with the most mechanistic monetarist robotic militaristic (not just mechanistic) offshoots of economic theory I can think of. We have had the chainsaw wielders wreak havoc on the “units of labour” everywhere every five years – “labour units” ie disposable organisational nappy wipes getting thinner every year.

We have had the vital organs and brains of reasonable organisations excised in the name of a two cent share price hike or a 3 month stellar market performer, and its all been driven by monetarist / neoclassical / monty pelican type free market grossly obese piggies at the top.

Isnt this the real picture? We were damn lucky Keynes lived and Keynes wrote but more than that we were lucky he had a clue. When we do manage clean out the now discredited nonsense, gibberish, lies and woeful models of the Chicago School and its fattened hatchlings we may be back on the road to developing useful economic policy for the first time in my lifetime.

My gorgeous kid came into the kitchen with the best illustration of trickle down I have seen on his new Tshirt ordered from the US online!. It had a picture of a large city building with a smashed glass window, through which had jumped a suited corporate type clutching a bursting briefcase stuffed with money some of which was floating in the air (trickling down maybe.)

Ikonoclast @ 10, in other words, the question posed by Sean is devastating to the argument so therefore it is easier to simply dismiss it.

“That is what John Ralston Saul would call “the hypnotic clarity of false choices”. ”

So the decision to either live on the streets of Bangladesh or in a small house in a less affluent neighbourhood of a major Australian city is never a real choice open to any individual? It is merely a mental construct?

So would you rather be poor in a poor country or poor in a rich country? answers on a postcard.

And yet the ideology of free markets seems to suggest that the poor of first world should compete with the poor of third world without the protection of first world institutions such as unions or socialised medical programmes. Yawn indeed.

monkey’s uncle – sean doesn’t make a point about trickle down – he asks a question about where you would rather be poor. This has nothing to do with trickle down unless you are assuming that poverty is determined by the ‘trickle rate’. That is, you assume the conclusion you are looking for.
A similar problem underlies your point @20.

All joking aside, while the Onion piece is (as usual) funny, is does not even come close to actually rebutting “trickle-down” as an idea – unless you assume that everyone in all of the industries mentioned in the piece (defence, housing, banking etc.) had not benefitted from the extra spending generated by the tax cuts.
Funny – but not even close.

I can’t pick up on the value in the ‘trickle down’ idea. It just seems to be the trivial observation that wealthy people spend money on goods and services from people who are less wealthy. Obviously the idea that ‘trickling’ is a useful and efficient mechanism for wealth redistribution or the alleviation of poverty is ridiculous – so many other mechanisms present themselves. So other than as a propaganda tool to preserve or enhance privilege where is the value?

20# Monkey’s Uncle
asks “That is, if nothing trickles down why aren’t poor people in wealthy countries just as badly off as poor people in poor countries? ”

I dont know Monkey’s Uncle but perhaps you should ask the growing numbers of homeless people in advanced industrialised nations whether they think they are better off sleeping in the streets here or in a poor country. Sometimes I think people like you who want to tell the poor how much better off they are here than being poor say in Australia,than in some other poorer nation you just have no comprehension at all what it is to be poor – anywhere in the world do you?.

Its really quite an amazing attitude to me – this patronising attitude to the poor Monkey’s Uncle. Growing poverty is a problem whether it happens in a wealthy country or a poor country. Its the growth of poverty that is an economic concern or do we just tell the poor they are better off (even if their numbers are increasing) because the sun shines every morning here in Australia whereas things could be much in worse in Indonesia because there are lots more poor to compete with so to stop whinging about it

(as you seem to be implying Monkey’s Uncle – oh and Sean, what would I expect? He has had a bad day in the financial markets. May as well bash the poor.)

My understanding of trickle down is that it is a deceitful term used to justify the rich taking a larger slice of the pie.

Being greedy degenerates and obsessively self-satisfying, the rich will then try to make an even bigger pie which will increase their booty further.

To make and consume this bigger pie, more people will generally be required which means the masses’ take will remain pretty much the same, except for efficiency improvements, which could have happened anyway.

Meanwhile, this encouragement of greed has led to resource depletion, poisoning of ecosystems and wars to name a few.

Alice says “Sometimes I think people like you who want to tell the poor how much better off they are here than being poor say in Australia,than in some other poorer nation you just have no comprehension at all what it is to be poor – anywhere in the world do you?.”

Actually, for much of my life I haven’t had much money. Guess what? I’d still rather be poor in Australia than Zimbabwe.

Why Monkey’s Uncle – you get to sleep on concrete rather than dirt? Or is the quality of refuse in garbage bins superior in Australia to that of Zimbabwe? Maybe families are closer in Zimbabwe and they sleep 4 to a room but would take a cousin in who was poor, but maybe not in Australia.

These kind of statements (the poor are better off being poor in a rich country than a poor country) just ignore a whole lot of factors and its an empty sweeping generalisation Monkey’s Uncle.

The problem MU is that you and sean seem to think that the reason why people would prefer to be poor in Australia as opposed to a third world country is because of the “trickle down” theory of economics. The third world have rich and poor people and they also have “trickle down” economics. What they don’t have are social programs, such as socialised housing, schooling or medical care programs, or labour laws that prevent the exploitation of workers. I have a feeling that these things are much more important factors when people make such judgements.

Smiley is right
“What they don’t have are social programs, such as socialised housing, schooling or medical care programs, or labour laws that prevent the exploitation of workers. I have a feeling that these things are much more important factors when people make such judgements.”

Part of the problem Smiley mentions is the agenda to privatise these public services in many countries (?on the basis of trickle down ie if it trickles down we dont need public services which traditionally helped the poor).

So, not only does it not trickle down as advertised (would you have bought a car from Ronald Rayguns?) but the public sectors in many countries are being torn up on the advice of the IMF and other fiscally conservative (destructive) trickle down adherents.

34# Thats a double whammy for the poor MU and it doesnt matter what country you live in (rich or poor).

If executives pillage and rape resources and plunder countries and remove the proceeds from one tax haven top another and keep the majority to their own selfish use in some very wealthy resort or at the casinos in Monte Carlo, the only trickling going on is upwards and sideways and no, it doesnt benefit the poor in wealthy countries or poor countries (and thats whats been happening).

If a whole lot of pat talk comes out of this G20 meeting and no regulation over the financial behemoths occurs or no attempt is made to shut down the tax havens it will be totally and utterly pathetic (oh and good on Sarkovsky for leaving).

Get real Sean – we are not talking I million pounds when the firm made 4 billion pounds (the last time some of these excecs got paid 1 mill pounds was in the early 1990s – you are ten years out of date) we are talking far more than that in pounds when some firms lost billions and we are talking them still being paid after an injection of taxpayers money to keep them alive (AIG). Im not into subsidising parasites and leeches. Do you actually read the newspapers Sean? -

Your examples and numbers are so far out of (under) the mark I suspect you are a systematic one man misinformation campaign?

Smiley and Alice, regarding the argument that the only reason the poor are any better off in wealthy countries than in poor ones is to do with things like better labour laws and social programs for things like health care, this can be easily refuted.

Suppose you did away with things like minimum wage laws and other protections. Wages for low-skilled workers would no doubt fall. But there is no way they would fall to third world levels. Even if a market-clearing wage in Australia was between say $5 or $10 an hour, it still beats earning 50 cents an hour in Bangladesh.

So the existence of these social protections does not disprove trickle-down or prove that all of the difference is due to government.

Another factor is that the more the state compulsorily redistributes, the harder it is to empirically prove how much trickle-down would occur in its absence. i.e. if the state forcibly redistributes more resources through things like progressive taxation or high minimum wages or other programs, there is no way of proving how much would have trickled down in the absence of those things. If the state takes the money to begin with, you cannot prove how much of that would have trickled down in the absence of that state action.

Monkey’s Uncle says
“Suppose you did away with things like minimum wage laws and other protections. Wages for low-skilled workers would no doubt fall. But there is no way they would fall to third world levels. Even if a market-clearing wage in Australia was between say $5 or $10 an hour, it still beats earning 50 cents an hour in Bangladesh.”

- I guess JH tried that with Workchoices (market clearing wages) and how did that go for them? You forget people who have their wages falling also have a vote. Perhaps you need ti try vote clearing strategies before this little market clearing wage strategy experiment on Australian workers MU.
A little bit a realism works better.

Try clearing the rigidities from the top end of the labour force first and a strategy like that might have some have cred. If they did that market wages at the lower end wouldnt need to fall (or be pushed down so far).

I think trickle down has been given a fair run MU. I dont think there is any majority out there saying “more of the same please.”

Suppose you did away with things like minimum wage laws and other protections.

Has that ever happened? Or are we just talking theoretically here?

But there is no way they would fall to third world levels. Even if a market-clearing wage in Australia was between say $5 or $10 an hour, it still beats earning 50 cents an hour in Bangladesh.

You’re not even comparing apples with apples. But since we are talking “theoretically”… Bangladesh has a population of approx. 150 million as of 2005 and a population density of 1045/km^2. Australia has a population density of 2.833/km^2. If we were making real comparisons about the two countries then Australia would have to have a population of 1045/km^2x7686850km^2 or something in the order of 8 billion people (yes that’s with a b). I wonder how your trickle-down theory would work with them apples?

And that’s not even considering the natural resources available to each country. But I’m pretty sure that I don’t have to look anything up to guess that Bangladesh doesn’t have anywhere near the same size of coal, natural gas, iron ore, bauxite, or uranium resources (I’m sure I’ve missed some) that Australia has.

I think that I’ll need better evidence than what you’ve offered here to believe that the trickle-down theory has any merit.

I was a tiny bit worried that I got those numbers wrong, because 1045/km^2 does seem like a lot, but I double checked them. And when you consider that 1km^2 is 1000mx1000m or a million square metres then that means that each person has 976.6 square metres. Still pretty packed.

How could it work at all with a substantial welfare benefits scheme, an extensive tax system, forced distribution of wealth ( in a very inefficient way I might add), deep seated chronic ongoing orchestrated inflation. By the time any money trickled down it would be worth a lot less than the entity who spent it first.

The frames of reference of our economic and social structures would have to change substantially for the Trickle-Down to have any worthwhile effect.That is unrealistic so it just isn’t worth arguing about without removing all the impediments in achieving its benefits.

Its like a self fullfilling prophecy. It will never work in a social democratic frame of reference.

Economist Thomas Sowell has written that the actual path of money in a private enterprise economy is quite the opposite of that claimed by people who refer to the trickle-down theory. He noted that money invested in new business ventures is first paid out to employees, suppliers, and contractors. Only some time later, if the business is profitable, does money return to the business owners–but in the absence of a profit motive, which is reduced in the aggregate by a raise in marginal tax rates in the upper tiers, this activity does not occur. Sowell further has made the case that no economist has ever advocated a “trickle-down” theory of economics, which is rather a misnomer attributed to certain economic ideas by political critics.

I would suggest you look at the pay packet in 2007 for the Lloyds bank CEO. He got the same amount in 2008 when his bank still made money (except when he acquired HBOS in a gov’t sponsored deal!)

There are banks making money… but banks are not homogenous. You seem to think that the money investment bank execs get is pretty standard – IT IS NOT!

In finance Hedge Fund managers and Private Equity partners get the big profits and they also get the big hits with many of them failing and having to sell their house to pay off the debt.

Then come the investment bank chiefs but many in their trading room can get paid more than they do.

Then come the commerical bank chiefs whose company makes more profit than the investment banks or the hedge funds or the private equity firms but whose pay is considerably lower than theirs.

I do not know what planet you two are living on. But I can tell you the “big bonuses” are not a big as people like to claim and a good deal of that “bonus” is tied up in share options that are now virtually worthless because of the three-year vesting rule. I don’t find it funny when the ignorant and oblivious who can read think they know what actually happens in banks.

So you are saying that Executives in the global financial industry, have not been paid excessive remunerations?
(I think you may be the only one Sean – except for the executives themselves – I do see one or two article now defending their remuneration systems).

Well G20 thought remunerations excessive too.

Lets not split hairs on sub departments or small companies Sean. It is OK to take the big picture (but if you want to split hairs Ill leave you to it).